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The economists who believe in Biden's economy (even if the public does not) – The Washington Post

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In late 2009, J.W. Mason attended protests staged by homeowners facing eviction in Springfield, Mass., as an economic slump hit the country with a force not seen in decades.

Mason highlights that experience to illustrate the crisis that the American economy is not facing now. The City University of New York economist argues that the economy under President Biden is far better than commonly believed, in part because the United States has avoided the deep scarring that occurred during and after the Great Recession.

Some economic data appears to get only stronger each week. The U.S. economy has created more than 400,000 jobs each month for the past 11 months. On Thursday, the government reported that 166,000 people sought jobless benefits the week before, the lowest since 1968.

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This recovery’s higher inflation may be adding a very noticeable strain to family budgets, Mason said, but the United States avoided again inflicting much greater trauma on a smaller portion of the public through high unemployment and record foreclosures.

Democrats worry Biden could pay the political price for rising inflation

“That era was such a clear failure, and I think people have forgotten about the depths of it,” Mason said. “The trajectory of current inflation is important, but it’s a problem the debate is being reduced to just that.”

By most indicators, the American public is unhappy with Biden’s economy. In poll after poll, the majority of Americans say rising prices are a major and rising source of concern. Costs over the last year appear to be rising faster than wages overall, according to government reports, and voters by large margins have turned against the president’s handling of the economy. Inflation has quickly emerged in Gallup polling as the issue Americans see as the country’s most important challenge. The University of Michigan’s consumer sentiment survey has reported a 30 percent drop in the past year during a span when more than 4 million jobs have been created.

But a group of economists says that the apparent national dissatisfaction with the economy is probably driven by factors outside macroeconomic developments. The economists espousing this view — including Mason; Dean Baker of the Center for Economic and Policy Research; Julia Coronado, president and founder of MacroPolicy Perspectives; and Aaron Sojourner of the University of Minnesota — tend to be on the left side of the political spectrum. They maintain that the alarm over inflation receives outsize attention and threatens to overshadow the gains of the Biden era.

Even among liberal economists, that argument is sometimes greeted with unease. Claudia Sahm, a former Federal Reserve official, has long been among the most vociferous defenders of the administration’s economic stimulus policies. But Sahm said voters’ dissatisfaction with the economy is perfectly consistent with data showing wages are not keeping up with higher prices.

“I completely understand the dour mood among consumers,” Sahm said. “There’s a lot of people who point to the labor market, who point to the rapid recovery, but I am not going to question how people feel right now. … I would not try to talk away the problem, and I would never question how people are feeling.”

Inflation emerges as defining economic challenge of Biden presidency, with no obvious solution at hand

This debate has economic and political consequences, with the White House facing competing interpretations of what is happening in the country and Democrats trying to decide on their 2022 midterm election message.

Leading Democratic pollsters have repeatedly told the administration that the public is unhappy and worried about the economy, urging the White House to emphasize that it understands voters’ anger over higher prices. The administration has attempted to show it is doing everything possible to fight inflation, including tackling the nation’s supply chain woes and advocating for Biden’s domestic agenda to lower costs.

But senior administration officials have tried to balance being responsive to inflationary concerns while also emphasizing the ways in which the economy is excelling. Biden and White House Chief of Staff Ron Klain frequently highlight the country’s economic successes, including rising levels of economic output and the rapid plummeting of the federal unemployment rate. On Wednesday, White House National Economic Council Director Brian Deese told reporters the administration is not trying to downplay the gravity of the price challenges American consumers are facing.

Deese said there is a “false debate between us saying, ‘The economy is great, and nobody recognizes it,’ and other people saying, ‘Well, the economy is not perfect because there’s real significant challenges.’ ”

“Our view is not: ‘The economy is great. Why is nobody noticing?’ ” Deese said. “… It’s that we need to recognize and build on the uniquely strong aspects of this economic recovery in addressing the clear, ongoing challenges, particularly around inflation and costs for families.”

But some allies of the White House may feel more unencumbered to argue that the administration should be getting higher economic marks from the public.

Even as the Fed pledges to hike interest rates to cool an overheating economy, Baker, of the Center for Economic and Policy Research, said the threat posed by inflation has been wildly overstated. Baker said the White House has gotten “a bum rap” by a media that refuses to cover the good parts of the economy, adding that economists inside the White House share that view.

“There’s very little case we’re looking at spiraling inflation. The idea this is some disaster — it does not make any sense,” Baker said. “There really has been a media hysteria that scares people. This is what they report on the economy to the exclusion of everything else, and most measures are pretty damn good.”

Baker added: “It’s not as though people are sitting around thinking about the economy all day. So the question is: What sticks in their head? It makes sense to me that that will be what they see on the news or read in the paper.”

Coronado, of MacroPolicy Perspectives, said that dips in consumer sentiment have coincided with resurgences or the coronavirus, such as the with delta variant last summer. Moreover, polling on perceptions about the state of the economy are sharply divided on partisan lines. If voter frustration with the economy was genuinely caused by changes in their material circumstances, Coronado asks, why do Republicans suddenly sour on it the moment a Democrat is elected, and vice versa? This divide has deepened in recent years.

“You’ve got the strongest labor market since the 1990s,” Coronado said. “The pace of job gains has been record-breaking. It’s the fastest recovery from a recession we’ve seen.” She pointed out that while one major indicator of consumer sentiment has plunged to a low not seen since the depths of the Great Recession, another shows consumers feel about as optimistic as they did in 2015 or 2016. The former is known to be more influenced by inflation developments while the other is tied to labor market conditions.

One of the core disputes is over to what extent most Americans are seeing declines in their “real wages” — the change in their pay, when factoring for higher costs.

Average hourly earnings rose 5.6 percent over the past year for private-sector workers, according to the Bureau of Labor Statistics. But prices are up by more than that — hitting a 40-year high of roughly 8 percent last year — meaning, in aggregate, costs have risen faster than pay.

Many economists — including top Democratic ones — say this trend provides a simple explanation for voter anger. The job market recovery benefits roughly 6 million Americans who have been hired, whereas inflation hurts the roughly 150 million Americans who already had a job last year but are now getting poorer, said Jason Furman, who was a senior economist in the Obama administration.

Some defenders of the Biden administration have argued that inflation-adjusted wages are up, relative to before the pandemic, and that families have more money than before in their bank accounts because of stimulus payments and other forms of pandemic relief. But many economists say that over the past year, families’ wages have lost their value at a rapid clip. It is not clear why voters would weigh Biden’s economic performance by comparing their economic circumstances against a period of time a year before the president’s election.

Rents are up more than 30 percent in some cities, forcing millions to find another place to live

Prices are rising not just overall but also sharply for key household items — spiking by 26 percent for energy and 8 percent for food. Rents are up more than 30 percent in some cities. In February, inflation-adjusted wages fell by roughly 0.7 percent. That trend is not expected to hold but, if it did, would amount to a more than 8 percent pay cut on average over the course of a year.

“The economy is adding jobs at the fastest pace in 40 years, but real wages are falling at the fastest pace in 40 years,” Furman said. “Any positive analysis of real wages is some combination of cherry-picked and out-of-date data. … There is no question this year inflation is just dramatically outpacing wage growth, and in recent months that’s been true at the bottom, too.”

Douglas Holtz-Eakin, a former economic adviser to George W. Bush and John McCain, said the White House cannot take credit for the labor market while distancing itself from inflation, because the two are caused by the same fundamental driver — too much demand in the economy.

“What people are missing is the inflation problem and the great labor markets are flip sides of the same coin. You can’t keep the labor market and get rid of the inflation — it can’t happen,” Holtz-Eakin said. “The White House wants to take credit for the labor market without taking credit for inflation, and you can’t do that. The reality is you’re stuck with both, and people don’t like it.”

Mason said it is “unambiguously” true that inflation-adjusted wages are rising for some part of the low end of the income distribution, possibly for as much as the bottom 40 percent. He added that the value of people’s debt burdens is also being diminished by inflation, and that the Fed forecasts inflation will significantly moderate by the end of 2023. Baker and Mason also pointed out that inflation coming out of the pandemic is affecting virtually all major economies, although other economists point out it is happening more rapidly in the United States.

Mason added that part of the phenomenon may be explained by the fact that the biggest price increases have been among the most visible forms of consumption — such as energy and food — whereas price hikes have been smaller in some sectors that are opaque to consumers, such as health care. Workers may also see a promotion or better job as a product of their own individual efforts, rather than broader economic factors.

Sojourner, of the University of Minnesota, has also found that for the younger half of U.S. workers wages have grown faster on average over the past year than consumer prices.

“When you quit your job and get a new job with higher wages, you see that as something you did,” Mason said. “Obviously, when gas or milk prices go up you see that. … The negative stuff is more visible but also gets interpreted as something about the economy rather than your own personal situation.”

William Galston, a policy aide in the Clinton White House, said Democrats downplay the polling data at their own political peril. Galston pointed to an enormous new gap in enthusiasm for the upcoming election between Democrats and Republicans, with support for Biden’s handling of the economy dropping to 33 percent, a five-point decline, in the latest NBC News polling.

“Inflation has really surged to the center of American politics and now is by any measure the single most important issue on the minds of the American people,” Galston said. “It drives voters crazy when they think you don’t care about what they care about the most. It makes you look not only out of touch but also indifferent.”

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Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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Business leaders say housing biggest risk to economy: KPMG survey – BNN Bloomberg

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Business leaders see the housing crisis as the biggest risk to the economy, a new survey from KPMG Canada shows.

It found 94 per cent of respondents agreed that high housing costs and a lack of supply are the top risk, and that housing should be a main focus in the upcoming federal budget. The survey questioned 534 businesses.

Housing issues are forcing businesses to boost pay to better attract talent and budget for higher labour costs, agreed 87 per cent of respondents. 

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“What we’re seeing in the survey is that the businesses are needing to pay more to enable their workers to absorb these higher costs of living,” said Caroline Charest, an economist and Montreal-based partner at KPMG.

The need to pay more not only directly affects business finances, but is also making it harder to tamp down the inflation that is keeping interest rates high, said Charest.

High housing costs and interest rates are straining households that are already struggling under high debt, she said.

“It leaves household balance sheets more vulnerable, in particular, in a period of economic slowdown. So it creates areas of vulnerability in the economy.”

Higher housing costs are themselves a big contributor to inflation, also making it harder to get the measure down to allow for lower rates ahead, she said. 

Businesses have been raising the alarm for some time. 

A report out last year from the Ontario Chamber of Commerce also emphasized how much the housing crisis is affecting how well businesses can attract talent. 

Almost 90 per cent of businesses want to see more public-private collaboration to help solve the crisis, the KPMG survey found.

“How can we work bringing all stakeholders, that being governments, not-for-profit organizations and the community and the private sector together, to find solutions to develop new models to deliver housing,” said Charest.

“That came out pretty strong from our survey of businesses.”

The federal government has been working to roll out more funding supports for other levels of government, and introduced measures like a GST rebate for rental housing construction, but it only has limited direct control on the file. 

Part of the federal funding has been to link funding to measures provinces and municipalities adopt that could help boost supply. 

The vast majority of respondents to the KPMG survey supported tax measures to make housing payments more affordable, such as making mortgage interest tax deductible, but also want to maintain the capital gains tax exemption for a primary residence.

The survey of companies was conducted in February using Sago’s Methodify online research platform. Respondents were business owners or executive-level decision makers.

About a third of the leaders are at companies with revenue over $500 million, about half have revenue between $100 million and $500 million, with the rest below. 

This report by The Canadian Press was first published March 27, 2024.

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